Has the regulation for the NMPA created a new critical advice point?
Duncan Singer, Aviva Platform Distribution Manager
The Finance (No. 2) Bill 2021-2022 from HM Treasury was issued back in November 2021 and at first sight it appears very much in line with what may have been expected.
The Normal Minimum Pension Age (NMPA) has now been set to increase from 55 to 57 with effect from 6 April 2028. This change will only affect those who intended to draw on their pension funds before reaching 57.
This might appear to be no big deal, as most savers are best advised to delay taking their pension. However, there are some individual circumstances where early access is important. Surprisingly our data shows that 18.45% of all people taking benefits from the Aviva adviser platform in 2021 took them before age 57. The critical advice point here is that even if the member has no intention (at this point in time) of taking benefits early, why would they give up the right?
As ever, “the devil is in the detail”
The Finance (No.2) Bill makes provision for a new Protected Pension Age (PPA). This means that where certain conditions are met, a person may take their benefits earlier than age 57 without incurring an unauthorised payment tax charge.
Members of pension schemes who, on 4 November 2021, had an “unqualified right” to access benefits earlier than 57, can retain the original Minimum Pension Age of 55. This condition is based on how the pension scheme rules defined the minimum pension age on 11 February 2021 (the date of the initial consultation). Where the rules expressly state that benefits can be drawn from age 55, the Government considers that this would amount to an unqualified right. However, if the pension scheme rules refer to the NMPA or its underlying legislation, this would not confer an unqualifying right.
If your client is one of the lucky ones that have this “unqualified right” then they have a couple of key options open to them. First, they have the ability to consolidate all their other arrangements into the scheme with the “unqualified right.” Second, they can make new contributions, all of which can be accessed under the old NMPA rules. Now that could be a really big deal!
So how do you know whether a particular scheme or arrangement confers qualified rights or not? In short, you don’t although the likelihood is that most schemes will not confer this right, which makes those that do all the more valuable. As this is a critical advice point, the only way to find out is to ask the question.
How does the Protection work if benefits are transferred?
Importantly, the Bill made a last-minute change to the original proposals and the new rules were effectively put in force immediately from 4 November 2021.
Transferring a pension with no “unqualified right” to another scheme or plan where the member has an “unqualified right”
An individual transfer can be added to the pot with the “unqualified right” and it can all then be accessed from age 55. There is no ring-fencing of benefits in this scenario, meaning additional contributions will also benefit from the PPA.
Transferring a pension which has an “unqualified right” to another scheme or plan with no “unqualified right”
An individual transfer from a scheme with the right to take benefits at age 55, to a receiving scheme which has no right, can retain those rights but ONLY for the benefits transferred, and NOT to future benefits coming from future contributions.
The pension scheme providers will have to ring-fence the transferred benefits, so it’s clear which benefits retain the protection.
A block (or buddy) transfer is where more than one member of a scheme transfers at the same time to the same receiving scheme. If the transfer is made like this (from a scheme with a right to take benefits from age 55, to a scheme where there is no right), the receiving scheme can retain the right to take benefits from age 55, and this right extends to both existing AND future benefits in that scheme.
So in conclusion, it seems we have another layer of complexity to consider when advising clients on retirement planning and transfers.
Aviva pension plans
The Aviva Personal Pension Scheme has an unqualified right to take benefits at age 55, which means that all members who joined via the pension plans held under this scheme prior to 4 November 2021 have their NMPA of 55 protected.
Because the legislation is applied to scheme rules it also means that transfers between any pension products which are governed by the rules of the Aviva Personal Pension Scheme will keep their protection on transfer. Pension Portfolio on the Aviva Platform is governed by the Aviva Personal Pension Scheme.
Where the pension is held under the Aviva Personal Pension Scheme, this right can be transferred to Pension Portfolio on the Aviva Platform without ring-fencing, as the individual is already a member of the same scheme before 4 November 2021.
All “Unisure” personal pensions in place before 4 November 2021 have an unqualified right to access benefits at the age of 55.
There are, however, a number of different schemes within the Aviva estate so it is important to establish the position.
Click here for further information and to see which Aviva pension plans are part of the Aviva Personal Pension Scheme or speak to your usual Aviva contact.